Impact of Immigration on UK Economy

This article explores the positive and negative effects of immigration on the UK economy. It discusses the impact on the circular flow of income, GDP, unemployment, and the labor market. It also examines how immigration affects public finances and contributes to economic growth. The findings of this study can help policymakers address challenges and find solutions for the future.

Introduction to Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Impact of immigration on circular flow of income.....................................................................1
Impact of immigration on Gross Domestic Production (GDP)...................................................4
Impact of immigration on unemployment...................................................................................5
Impact of immigration on labour market.....................................................................................5
Conclusion.......................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Immigration refers to a term of international movement of people from their birthplace to
destination country, to earn for livelihood. It highly affects labour market by suppling a pool of
workers into certain sectors (Valentino and et. al., 2019). With increasing demand of immigrant
labours, industries get benefit to innovative ideas and high efforts them into successful
production. The present report is going to conduct a study on exploring the positive and negative
effects of immigration on UK economy. For this purpose, main concern is given on key concepts
of circular flow of income, gross domestic production, unemployment and labour market.
Hereby, significance of this article can measured in terms of findings of issues and contribution
of labour market on economy of this nation, which would help policymakers to determine
upcoming challenges and solution for resolving the same.
MAIN BODY
Impact of immigration on circular flow of income
National income, expenditure and output which are generated by different activities are
considered as most vital part of economy. Hereby, national outcome defines total output value
which are produced by firms, while national income refers to aggregate income received by
people (Blinder and Jeannet, 2018). For example – wages given by firms to its workers for
producing output is national income, which flows from industries to households. Similarly,
national expenditure defines as total capital spend on producing and distributing goods or series.
It includes labour costs and amount paid by households for buying products, so, it shows flow of
income from households to firms. Thus, all these factors indicate how income flows into closed
economy, without intervention of government (Rutter and Carter, 2018).
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Considering the concept of immigration that defines as migration of people at international
level into non-native place for earning money, highly put impact on this circular income flow.
With increase of workers supply due to immigration, firms of UK and other countries set
agendas either in favour or against them (Ottaviano, Peri and Wright, 2018). For this purpose,
considering the different tax contributions that immigrant people make to public finances,
including cost benefits and public services received by them, indicates favourable view. It has
been estimated that fiscal impact of increasing immigration is relatively much small i.e. near
about 1% of total GDP (How immigrants affect public finances?, 2017). It has been measured in
terms of individual characteristics of immigrants, where young and highly skilled ones are
worked on high-paid jobs. So, they are likely to put more positive contribution on UK economy.
As per the figure given below, working-age population of UK-born has made a positive fiscal
contribution, which has only turned into deficit overall via elderly cost (Doyle, 2018). While,
same population from immigrants has put negative impact. According to OBR (Office for
Budget Responsibility), it has identified that higher immigration has reduced pressure
government debts, where increasing migrants of young people from other countries aid UK in
making economic and fiscal contribution. However, it is also noted that after 50 years, these
people also get retired which will increase age-related pressure on government. So, it may arise
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fiscal challenges in front of policymakers of this nation as well as affect negatively the circular
flow of income (Lomax, Wohland, Rees and Norman, 2020).
Figure 1: How immigrants affect public finances?, 2017
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Impact of immigration on Gross Domestic Production (GDP)
Expansion of workforce always results in increasing total output levels of a country, which
further leads to enhance per capita income and growth of economy (Leruth and Taylor-Gooby,
2019). Therefore, technically it has estimated that immigration not helps in supplying the
workers, but also leads to boost economy as well, by giving contribution in enhancing production
of goods and services to meet customers demand. In context with UK market, its economists
have revealed that if continuous coming of immigration would not happen from last three
decades, then its economy would be much lesser than now (Konitzer and et. al., 2019). From
these periods, rate of immigration has increased by twice as compared to British-born
populations. Mostly, these immigrants are highly educated and come over for employment
purpose, they leave this nation before retirement to live rest of life at native place or somewhere
else. So, this factor shows significant impact on fiscal policies, where give more relatively in
public finances, than receive benefits. They are also propelled as most productive ones, which
help industries especially that trade at international level, to meet higher demands of people by
offering innovative and fast supply of goods or services (Valentino and et. al., 2019). It has
further claimed that immigrants cover near about 8% of UK-born population but contribute 10%
to increase GDP.
As per the recent survey of Government Actuarys Department (GAD), it has been
estimated on the basis of principal projections i.e. 130k a year net migration in duration of 2003
to 2031, the migration within UK will add up to 5.2 million to overall population where nearly
3.8 million will belong from working age population (Rutter and Carter, 2018). So, this
conditions equates to the average compound growth rates over 0.34% that is, with increase in
immigration by 0.3%, they will contribute only 0.34% to annually enhance growth of GDP
(Contribution of Immigration to GDP, 2020). It indicates benefit for economy as per head per
year, near about 0.04%, with working out 7 per head yearly. Therefore, this result shows neither
the additional infrastructure costs accounts nor congestion costs, to which positive impact
immigration on this scale can be considered. However, on other terms, it has further claimed that
near about 15% of trend growth of this country depends on immigration, which is approximate
2.75% (0.4 is 15% of 2.75), which has provided same result but indicated good impression as
well (Ottaviano, Peri and Wright, 2018). Therefore, from overall discussion it has been
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calculated that Gross Domestic Product of UK has much increased as well as will continuously
rise, but it will accrue largely in the form of wages to immigrants (Blinder and Jeannet, 2018).
Impact of immigration on unemployment
Since incoming of people from outside nations leads to increase supply of demanded
workforce in major industries. So, this factor contributes in influencing the aggregate
unemployment rate within a country (Lomax, Wohland, Rees and Norman, 2020). Immigration
mostly puts negative impact on ethnic minorities or low-salaried working class people, relatively
as compared to middle or high-paid workers. According to Britain economists, it has been
evaluated that with moving of people from foreign countries and emerging concepts of
globalisation, enforce industries to increase diversity at workplace, by giving more job
opportunities to talented outsiders (Doyle, 2018). So, it highly affects potential local population,
who are seeking to get more employment within desired industries. Through annual population
survey data, it has analysed that over-qualifications of outsiders is relatively much higher than
residents. So, industries in order to increase production rate, concern more on giving
employment to them, instead to local people. But it consequently results in developing economy
with increasing GDP, so, government also used to put less or no interventions on their
employment policies (Leruth and Taylor-Gooby, 2019). In context with UK market, through
various reports, it has been identified that low wage workers due to rise in immigrant population,
has lost their job. This shows the negative impact of immigration on unemployment rate of
respective country, especially in economic downturn period. However, studies show that
immigration impact upon labour market of UK depends on skills, knowledge and characteristics
of country from where they belong to. Therefore, considering this fact, short-run effect of
increasing movement of people from foreign nations in UK, is much different from long-run
effect i.e. any decline within employment and wages of British people in short period, can be
offset via rising wages as well as job opportunities within longer period (Konitzer and et. al.,
2019). Considering the statistical record during 1990s to till, there is only 1% rise within
immigrants share, that reduces aggregate wages in semi-skilled and unskilled sector by 0.2% in
UK (How immigrants affect jobs and wages, 2017).
Impact of immigration on labour market
The possible impact of immigration on wages as well as employment outcomes of native
workers, it has been evaluated that it also has a significant effect on labour market as well. As
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most of the immigrants are belong from host countries having high quality and knowledge,
therefore, giving employment to such individuals results in increasing productivity of labour
market (Valentino and et. al., 2019). Along with this, it also further leads industries of UK to
increase their production quantity and quality manner, by getting adequate supply of labours
from international market. According to opinion of various economists, it has been evaluated that
potential negative impact of labour market on UK’s population, can be measured on the basis of
wages and employment. Whereby, as per above discussion, it is relatively much small i.e.
significantly it has less affected the population of this country (Rutter and Carter, 2018).
Emerging consequences on immigration is relatively higher in terms of increasing productivity
and growth of industries, by getting high performances of them to meet domestic or international
needs of customers at profitable manner. Skills and knowledge of immigrants, aid UK industries
to put their efforts and idea into business concept, for producing innovative products to people
(Ottaviano, Peri and Wright, 2018). So, this would further lead to increase competency level of
this nation also, in terms of having great power of high skilled human capital. Along with this, to
meet demand of organisations for hiring talented and highly-qualified workers, also enforce UK-
born people to develop their competencies for increasing chances of them to get employment.
So, it shows positive impact of increasing migration on labour market of this country, with
human or society development.
Conclusion
From all over discussion and applied economic theory, it has been concluded that exact
prediction about negative or position impact of immigration over UK seems to be difficult one.
Some factors like development of competencies and skills under local workers by influencing the
skilled-immigrants shows positive effect. While reducing unemployment for less-skilled one
indicates the challenges for policy makers to provide more job opportunities for them. Similarly,
through statistical analysis, it has been summarised that due to continuous incoming of people
from foreign countries also aid UK to improve and increase its GDP. However, it is not much
significant but contribution of immigrants in increasing growth of economy cannot be neglected
also. Therefore, policy makers of this nation need to consider the positive contribution of
immigrations first, with concern on local workers also, while developing fiscal policies for
enhancement of country’s economy.
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REFERENCES
Books and Journals
Blinder, S. and Jeannet, A. M., 2018. The ‘illegal’and the skilled: effects of media portrayals on
perceptions of immigrants in Britain. Journal of Ethnic and Migration Studies. 44(9).
pp.1444-1462.
Doyle, C., 2018. Housing in UK New Immigration Destinations: Planning, houses of multiple
occupation and the challenges of uncertainty. Journal of Rural Studies. 64. pp.276-288.
Konitzer, T. B. and et. al., 2019. Ethnocentrism versus group-specific stereotyping in
immigration opinion: cross-national evidence on the distinctiveness of immigrant
groups. Journal of Ethnic and Migration Studies. 45(7). pp.1051-1074.
Leruth, B. and Taylor-Gooby, P., 2019. Does political discourse matter? Comparing party
positions and public attitudes on immigration in England. Politics. 39(2). pp.154-169.
Lomax, N., Wohland, P., Rees, P. and Norman, P., 2020. The impacts of international migration
on the UK’s ethnic populations. Journal of Ethnic and Migration Studies. 46(1). pp.177-
199.
McLaren, L., Boomgaarden, H. and Vliegenthart, R., 2018. News coverage and public concern
about immigration in Britain. International Journal of Public Opinion Research. 30(2).
pp.173-193.
Ottaviano, G. I., Peri, G. and Wright, G. C., 2018. Immigration, trade and productivity in
services: Evidence from UK firms. Journal of International Economics. 112. pp.88-108.
Rutter, J. and Carter, R., 2018. National Conversation on Immigration. British Future.
Valentino, N. A. and et. al., 2019. Economic and cultural drivers of immigrant support
worldwide. British Journal of Political Science. 49(4). pp.1201-1226.
Online
How immigrants affect public finances?. 2017. [Online] Available Through:<
https://fullfact.org/immigration/how-immigrants-affect-public-finances/>.
Contribution of Immigration to GDP. 2020. [Online] Available Through:<
https://www.migrationwatchuk.org/briefing-paper/7/contribution-of-immigration-to-
gdp>.
How immigrants affect jobs and wages. 2017. [Online] Available Through:<
https://fullfact.org/immigration/immigration-and-jobs-labour-market-effects-
immigration/>.
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